Distributed Servers to Fight Vulnerabilities
Decentralization - The Key to a More Secure and Transparent Future
The centralized servers which have long been the backbone of various industries - including the world of finance - continue to face significant challenges in their ability to safeguard our sensitive information.
Can decentralization address many of the shortcomings we experience in TradFi and present us with a new, DeFi experience?
Let’s explore!
Distribution Against Vulnerability
Traditional centralized servers are vulnerable to various security risks such as hacking, data breaches, and unauthorized access.
Blockchain, on the other hand, offers a decentralized and distributed approach to data storage and management, which provides enhanced security features.
Here are some ways in which blockchain addresses security concerns:
Decentralization: In a blockchain network, data is not stored in a single centralized location but is distributed across multiple nodes. This decentralized nature makes it difficult for attackers to compromise the entire network. Even if one node is attacked, the other nodes in the network maintain a copy of the data, ensuring its availability and security.
Immutable and Transparent: Blockchain employs a cryptographic mechanism, such as hashing and digital signatures, to ensure the integrity and immutability of data. Once data is recorded on the blockchain, it becomes extremely difficult to alter or tamper with. This feature provides a high level of trust and transparency, as any changes made to the data can be easily detected.
Consensus Mechanisms: Blockchain networks use consensus algorithms to validate and agree on the state of the data across all nodes. These mechanisms, such as Proof of Work (PoW) or Proof of Stake (PoS), ensure that the majority of nodes agree on the validity of transactions and prevent malicious activities. This consensus process adds an extra layer of security and prevents unauthorized modifications.
Encryption and Security Protocols: Blockchain employs advanced encryption techniques to protect data and transactions. Each transaction is encrypted and linked to the previous transaction, forming a chain of blocks. The use of cryptographic algorithms ensures that data remains secure during transmission and storage.
Smart Contracts: Blockchain platforms often support smart contracts, which are self-executing contracts with predefined rules and conditions. Smart contracts automate processes and eliminate the need for intermediaries, reducing the potential for human error and malicious activities. Smart contracts execute transactions based on predetermined conditions, ensuring trust and security in business operations.
Security & Transparency in Finance
If a bank’s server experiences technical issues, power outages, or cyber attacks, it can result in the unavailability of banking services for customers, all of which leads to significant disruptions and financial losses.
Centralized servers are also very attractive targets for hackers because they store a vast amount of sensitive customer data, including personal information, account details, and transaction history. If a server is compromised, it can lead to data breaches, identity theft, and financial fraud.
High-profile data breaches in the banking sector have highlighted the risks associated with centralized servers and it is hoped that blockchain technology can mitigate the risks due to it’s distributed nature.
“Finance is especially significant to consider when it comes to security and transparency. No one wants to feel like their data and money aren’t safe,” says Yang Lan, co-founder of Fiat24. “We believe that recreating much of traditional banks services on the blockchain will help to correct several of the major issues facing TradFi today.”
